Community Financing: Assessing the Lending Marketplace in 2017

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By Zach Koucos

Director, Holliday, Fenoglio, Fowler (HFF)

The second half of 2016 and early 2017 signaled a great amount of uncertainty regarding the future of fiscal and regulatory policy in the United States. While everyone is trying to figure out what the impacts of policy changes by the Trump administration will be on the economy, the stock market has surged and interest rates have climbed. Both of these occurrences reflect a positive reaction to the election in the financial marketplace, however the effect on real estate and income property values remains a concern for owners.


Higher interest rates certainly impact the feasibility of borrowing money, which in turn affects the purchasing power for real estate acquisitions as well as property values. Most fixed rate lenders price their loans based on US Treasury yields. Many borrowers have been focusing on rising benchmark interest rates, however the good news is that US Treasury yields today are still far lower than their long term averages. As of March 7, 2017, the 10 year US Treasury yield stood at 2.51%, compared to 1.83% on November 7, 2016, the day before the election. The 10 year US Treasury yield began 2016 at 2.24%, and 2015 at 2.12%. To provide some perspective, below is the average yield on the 10 Year US Treasury during the last 5 decades, and so far in the 2010’s:


1961 – 1969:  4.73%

1970 – 1979:  7.50%

1980 – 1989: 10.59%

1990 – 1999:  6.67%

2000 – 2009:  4.46%

2010 – 2016:  2.38%


We have definitely enjoyed some very low interest rates over the last few years, which has benefitted borrowers and helped to support increasing property values. Most economists are predicting that ultimately Treasury yields have to return closer to these long term averages shown above, citing the Trump administration’s mix of reflationary policy initiatives. Rates can always go down in the short term, however if the United States is successful at growing nominal gross domestic product (GDP) over the next few years, Treasury yields could likely follow. Given this outlook, today’s still historically-low interest rate environment offers an extraordinary opportunity to evaluate your near and long term financing objectives.


Notwithstanding recent volatility due to the political climate and rising interest rates, the marketplace for income property financing remains very healthy, with no shortage of capital. Lenders remain optimistic for 2017, and most are planning to equal or exceed their loan origination volume from 2016. This includes lending for manufactured home communities (MHC’s), an asset class of ever-increasing interest to capital providers. Volatility forces commercial lenders to gravitate towards lower risk, stable, income-producing real estate. Manufactured home communities are increasingly high on their lists, since the cash flow is consistent and demand for affordable housing is strong.



Numerous institutional and private owners of manufactured home communities and other commercial real estate have taken advantage by locking in historically low fixed rate loans. In several cases, refinancing existing loans with prepayment penalties still made economic sense given the savings realized with today’s low interest rate financing. If you’ve been considering a refinance to lower expenses, access additional capital to fund overdue projects, or facilitate additional acquisitions, it’s still a great time to take a look at the programs available in today’s market.   


The pool of varying capital sources deepened even further in 2016. Lender demand for existing, stabilized real estate transactions remains strong, despite escalated regulatory practices imposed on the industry. Over $1 Billion in commercial real estate loans will be maturing daily through the end of 2018, and the necessary lender appetite is present to service this need. Owners of manufactured home communities will benefit from this activity, as the capital marketplace for MHC’s continues to expand and lenders are seeking to deploy capital on lower risk housing assets.


An overview of community financing options for 2017:

As a result of Dodd-Frank Wall Street reform policies and Basel III regulations imposed on banks, construction and “high risk” lending is tightening. Thus, more lenders are gravitating to existing, stable income-producing assets such as manufactured home communities. Cash-flowing properties are in high demand, and the returns that MHC’s provide are often more favorable when compared to conventional multi-housing properties in most markets.

Fannie Mae and Freddie Mac are both Government Sponsored Enterprises, or GSE’s, and are charged with ensuring that capital is available to providers of multifamily housing, including manufactured housing. The GSE’s are established, reliable providers of non-recourse financing for higher quality MHC’s. Fannie Mae can offer fixed rates as long as 30 years, whereas Freddie Mac typically offers fixed rates of 5, 7, or 10 years, with up to 30 year amortizations. Both GSE’s also have the ability to offer very attractive floating rate loans, and supplemental financing, or additional loan proceeds, to their own existing loans as the property’s cash flow increases.


Life insurance companies continue to be an excellent source of non-recourse financing for MHC’s, often beating out the GSE’s on pricing and flexibility of loan structure. Since they are “on-book” or “portfolio” lenders, life co

mpanies can offer unique capabilities such as locking your interest rate at application, as well as various customized combinations of loan terms, amortizations, and prepayment options. Similar to the GSE’s, life companies can offer forward rate lock options, allowing a borrower to lock in a loan commitment and fixed rate as far out as 12 months in advance of funding.

Both the GSE’s and life insurance companies are offering interest-only payment periods, up to the full loan term for more moderate leverage.

An increasing number of commercial and regional banks are targeting MHC lending. Bank loan features for MHC’s include 30 year fully-amortizing loan terms, with low fixed rates for 3 to 10 years. Some banks can offer non-recourse financing on MHC’s at lower leverage points.  

CMBS/Conduit lenders, although volatile during 2016, provide a non-recourse financing option for owners with communities that would not be considered by the GSE’s or life insurance companies. Another alternative is the emergence of several new Debt Funds. These are portfolio lenders that offer higher-leverage specialty and bridge financing, and are best suited for non-stabilized assets and short-term turnaround transactions.  

Navigating this array of lending options can be complicated and confusing, so be sure to work with a lender or intermediary who knows the market and is experienced in MHC transactions. The key to success is aligning with the right capital source based on your specific needs. The selection depends on the profile, age, quality, and location of your community, as well as your loan feature preferences and financing objectives. The good news is that the number of sources for MHC financing continues to increase, and we believe the best is yet to come for owners of this reliable, in-demand asset class.

Zach Koucos is a Director at HFF and is responsible for originating commercial real estate financing throughout the U.S., with a specialized practice in MHC and RV Resort financing. HFF offers financing from over 50 Life Insurance Companies, Fannie Mae, Freddie Mac, Banks, CMBS/conduits, and Debt Funds. HFF has been named the #1 Financial Intermediary in the U.S. by National Real Estate Investor for 5 years running. Zach can be reached at the following:


Ph: (858) 812-2351

Fax: (858) 552-7695
email :

Website :


4350 La Jolla Village Drive

Suite 450

San Diego, CA 92122



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